EU FINANCIALS: MAPFRE - Fitch moves to positive outlook
From the press release we think it is safe to assume that if MAPFRE looks like achieving in 2025 a similar results to 2024 an upgrade is inevitable.
Factors that could lead to positive rating move
- Net income return >10% (2024 net income return 11.4%. 8% in 2023)
- SII > 180% (202.4% in 2024, not expected to decline)
- Financial leverage ratio <25% ( 18.5% in 2024)
- Stable asset risk (risky assets/capital at 90% in 2024)
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EGBS: Government Formation Helps Promote OLO Tightening Early This Week
News of the formation of a Belgian government late on Friday provided OLOs with some insulation during Monday’s early EGB spread widening vs. Bunds, with the tightening move then developing further as U.S. tariff risks shifted.
- 10-Year OLOs are now ~2bp tighter vs. Bunds since Friday’s close and ~1bp tighter vs. DSLs over the same horizon.
- This comes after the spread to DSLs registered the widest close since ’19 on Friday.
- The spread tightening may extend further if the newly established coalition government holds up, given reduced political risk, at least in the near-term.
- Positioning is another supportive factor here, with OLOs a preferred short across many sell-side RV EGB recommendations (vs. both semi-core peers and peripheral paper).
- While Belgium’s medium-term fiscal challenges remain intact, the introduction of a new government may also prove to be enough to fend off negative rating action from Fitch (update due after hours on Friday, current rating: AA-; Outlook Negative).
- Fitch is likely to maintain its negative outlook on Belgium (assuming AA- status is affirmed) given the country’s longer run fiscal challenges and ongoing (albeit reduced) political risk.
Fig. 1: 10-Year OLO/Bund & OLO/DSL Spreads
Source: MNI - Market News/Bloomberg
GILT PAOF RESULTS: GBP1062.499mln of the 4.375% Mar-30 Gilt sold.
- GBP1062.500mln had been on offer.
- This leaves GBP9.562bln of the gilt in issue.
GILTS: Recent Long Building In Futures May Have Factored Into Morning Weakness
Open interest data points to fresh net long setting in gilt futures across each of the last 4 sessions, with a ~23K increase in contract OI (~2.4% of OI as of last Tuesday’s close) seen as the contract rallied by 110 ticks.
- This positioning may have factored into this morning’s weakness in the contract, particularly if the long setting was dominated by short-term accounts.
